With the U.S. real estate market on the upswing, foreign investors are eyeing – and buying – properties in America more and more. In fact, from 2012-2013, international buyers made up more than 6% of home sales, or more than $68 billion in purchases. Even though that statistic is a few years old, it illustrates just how much interest there is from foreign buyers.
If you’re an international buyer looking for investment property in the U.S., you’re likely already aware that there are certain steps you must take beforehand. Use these tips to help you get started:
- Learn how U.S. real estate buying works. Before you do anything, you need to familiarize yourself with the U.S. real estate market and how to buy property in it. Understand that each state has their own set of laws and rules pertaining to real estate, so if you know where you plan to invest, look up that state’s regulations.
- Research different markets to find the one that meets your needs best. Investment properties will yield different returns, depending on the market they’re in. A great example of this is Detroit versus Dallas. When you compare these markets, you can see major differences in the types of homes available, the cost to buy, and the returns that investors are getting.
- Open a U.S. bank account. Having a bank account in the U.S. is the easiest way to send/receive funds from your country to the U.S. Some banks require you to be a U.S. citizen or be a foreign national living in the U.S., but others do not. Check around at different institutions to see what the requirements are and if you are eligible to open an account. Don’t worry if you’re not, though. You can still use a bank in your home country, but be aware that you may face obstacles with currency exchange and the amount of time needed to transfer funds.
- Establish good credit. If you plan to use a mortgage to buy your property, you need to first establish good credit in the U.S. But even if you don’t plan on taking a loan, it won’t hurt to do this. This can be done by opening a U.S. bank account and credit cards, and then keeping those accounts in good standing.
- Get an ITIN. In order to purchase U.S. real estate, you will need to apply for an Individual Taxpayer Identification Number, or ITIN. The Internal Revenue Service (IRS) issues these for tax-processing purposes. Visit the IRS website to learn more and find out how to apply.
- Work with a local real estate agent or turnkey provider to find a suitable property. Working with a local real estate professional is critical to finding a good property for investment. You want someone who is an expert in the area you plan to invest in, because they are the ones who will know if a property is priced fairly, if it’s likely to be rented quickly and for how much, how easy it be to sell it when you’re ready, what neighborhoods are best, and so on. They will also be immensely helpful after you’ve found a property. You’ll need to set up inspections and appraisals, and you’ll want a knowledgeable person who can help with every step of this process.
- Use a title company or real estate attorney to handle the closing. Signing all the paperwork to purchase and take ownership of the property is a pretty big deal, and having a professional guide you through this process is important. They’ll be able to explain what each of the documents mean and answer any questions you may have. While it’s not necessary for you to travel to the U.S. to sign these documents in person, you will need to appoint a Power of Attorney to represent you and sign for you if you choose not to be present at the closing.
- Understand what fees you’ll be responsible for. In the U.S., buyers are required to pay certain fees when purchasing real estate. These will include things like appraisal and inspection fees, title and insurance fees, recording costs, and others. There may also be a commission to be paid to the real estate agent, if you’re working with one.
- Figure out what you will pay in taxes and insurance each year. As a homeowner, you are required to pay local (city/county) property taxes each year, as well as (potentially) income tax if you are making money off your property. To find out exactly which taxes you’ll be subject to and how much you can expect to pay, talk to an accountant or tax professional who understands U.S. tax law – especially in the area of real estate investment. Insurance on the property is another necessity, and talking to an insurance agent is a must to determine how much you’ll pay and what type of coverage you’ll have.
- Plan for how you’ll market and manage the property after purchase. Once you become the new owner of the property, you’ll need someone local to market and manage it for you. If you worked with a turnkey provider to locate and purchase the property, then you may already be set here, as many providers offer property management services as well. If you didn’t, though, you’ll need to locate a reputable property manager who can handle things like tenant screening, rent collection, and repairs.
Real estate in the U.S. is hot and only going to get hotter, and just because you don’t live here doesn’t mean you can’t get in on the action. While buying a property in a country other than your own may seem like a daunting task, it is doable. Use the tips above to help you along the way, and before you know it, you’ll be the owner of a cash-flowing investment property in the U.S.!